York Manufacturing Company v. Cassell/Opinion of the Court

The question is simply whether the York Manufacturing Company has a right, under its conditional sale of the machinery to the bankrupt corporation, to take the machinery out of the premises where it was placed, as against all except judgment or other creditors by some specific lien. There are no judgment creditors in the case and no attachment has been levied, and the question is simply whether the adjudication in bankruptcy is equivalent to a judgment or an attachment on the property, so as to prevent the York Manufacturing Company from asserting its right to remove the machinery by virtue of the reservation of title contained in its contract.

In Wilson v. Leslie, 20 Ohio, 161, the court was construing the language of the statute relating to chattel mortgages, which declared a mortgage absolutely void as against creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage or a true copy thereof should be deposited forthwith, as directed in the act. The court held that the mortgage was not void for lack of filing, as between the parties thereto, but that the statute only avoided the instrument as to those creditors who, between the time of the execution of the mortgage and the filing thereof, had taken steps to 'fasten upon the property for the payment of their debts.' As against such as had in the interim secured liens by attachment, execution, or otherwise, the mortgage would be void. When filed with the recorder the instrument became valid as against all persons except those whose rights have attached upon the property before the recording of the instrument. See to the same effect Re Shirley, 50 C. C. A. 252, 112 Fed. 301.

We have not been referred to any decision of the supreme court of Ohio as to the meaning of the statute requiring the filing of contracts of conditional sales, but we concur with the circuit court of appeals in this case, that the statute would render the unfiled contract void as to the same class of creditors mentioned in the chattel mortgage statute. Therefore the contract would be void as to creditors who, before its filing, had 'fastened upon the property' by some specific liens. As to creditors who had no such lien, being general creditors only, the statute does not avoid the sale, which is good between the parties to the contract.

The mortgage of Waight & Ames cannot be a lien on the machinery sold by the York Manufacturing Company, because the mortgage was prior to the time when any portion of such machinery was placed upon the land. There was no clause in the mortgage covering after-acquired property, and, in any event, the mortgage would not cover property so acquired, the title to which, as in this case, was reserved to the vendor. This was the ruling of the district court, and no appeal was taken therefrom by the mortgagees. There are no creditors with any specific liens, nor is there any other mortgage, and there is no attachment.

We come, then, to the question whether the adjudication in bankruptcy was equivalent to a judgment, attachment, or other specific lien upon the machinery. The circuit court of appeals has held herein that the seizure by the court of bankruptcy operated as an attachment and an injunction for the benefit of all persons having interests in the bankrupt's estate.

We are of opinion that it did not operate as a lien upon the machinery as against the York Manufacturing Company, the vendor thereof. Under the provisions of the bankrupt act the trustee in bankruptcy is vested with no better right or title to the bankrupt's property than belonged to the bankrupt at the time when the trustee's title accrued. At that time the right, as between the bankrupt and the York Manufacturing Company, was in the latter company to take the machinery on account of default in the payment therefor. The trustee, under such circumstances, stands simply in the shoes of the bankrupt, and, as between them, he has no greater right than the bankrupt. This is held in Hewit v. ''Berlin Mach. Works'', 194 U.S. 296, 48 L. ed. 986, 24 Sup.Ct.Rep. 690. The same view was taken in Thompson v. Fairbanks, 196 U.S. 516, 49 L. ed. 577, 25 Sup.Ct.Rep. 306. It was there stated that 'under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt.' See Yeatman v. ''New Orleans Sav. Inst.'' 95 U.S. 764, 24 L. ed. 589; Stewart v. Platt, 101 U.S. 731, 25 L. ed. 816; Hauselt v. Harrison, 105 U.S. 401, 26 L. ed. 1075. The same doctrine was reaffirmed in Humphrey v. Tatman, 198 U.S. 91, 49 L. ed. 956, 25 Sup.Ct.Rep. 567. The law of Ohio says the conditional sale contract was good between the parties, although not filed. In such a case the trustee in bankruptcy takes only the rights of the bankrupt, where there are no specific liens, as already stated.

The remark made in Mueller v. Nugent, 184 U.S. 1, 46 L. ed. 405, 22 Sup.Ct.Rep. 269, 'that the filing of the petition [in bankruptcy] is a caveat to all the world, and in effect an attachment and injunction,' was made in regard to the particular facts in that case. The case itself raised questions entirely foreign to the one herein arising, and did not involve any inquiry into the title of a trustee in bankruptcy as between himself and the bankrupt, under such facts as are above stated. The dispute in the Mueller Case was whether the court in bankruptcy had power to compel, in a summary way, the surrender of money or other property of the bankrupt, in the possession of the bankrupt, or of someone for him, without resorting to a suit for that purpose. This court held, as stated by the chief justice in delivering its opinion: 'The bankruptcy court would be helpless indeed if the bare refusal to turn over could conclusively operate to drive the trustee to an action to recover as for an indebtedness or a conversion, or to proceedings in chancery, at the risk of the accompaniments of delay, complication, and expense intended to be avoided by the simpler methods of the bankrupt law.' It was held that the trustee was not thus bound, but had the right, under the facts in that case, to proceed under the bankrupt law itself and take the property out of the hands of the bankrupt or anyone holding it for him.

In this case, under the authorities already cited, the York Manufacturing Company had the right, as between itself and the trustee in bankruptcy, to take the property under the unfiled contract with the bankrupt, and the adjudication in bankruptcy did not operate as a lien upon this machinery in favor of the trustee as against the York Manufacturing Company.

The decree of the Circuit Court of Appeals is reversed and the case remanded to the District Court, with directions to enter a decree in conformity with this opinion.

Reversed.